Savvy Selling

Learning in a group setting can be more meaningful and rewarding than trying to do it alone. That's the key principle being successfully applied by producers who participate in commodity trading or marketing clubs.

In most cases, producers who belong to such clubs generally agree that tackling and solving problems collectively will often enhance the learning experience.

Club members often gain a deeper understanding and appreciation for marketing, along with its technical aspects.

“Usually it's much easier to learn in a group setting,” says Chris Hurt, Purdue University agricultural economist. “In marketing clubs, you're bound to attract producers with various levels of experience.”

This can be a plus, he says, because the more experienced producers become part of the teaching process. “In this setting, people begin to open up, share ideas and marketing experiences,” he adds. “It also helps build trust and broadens the learning experience in a more disciplined and organized way.”

According to Hurt, marketing clubs usually can be grouped into three different types.

Informal Marketing Club: Just as the name implies, Hurt says informal clubs offer participants a means to get together and discuss what's going on in grain markets without collecting an upfront fee or establishing bylaws, a constitution or election of officers.

Trading Club: This type of club takes on a more formal structure and may have bylaws, a constitution and some officers, or at least an advisory board consisting of club members. It also may put money together by charging up-front fees to be used in trading.

Some clubs may have a membership fee of $300-500. Accurate record keeping and minutes of meetings become more important. Trading may first be done on paper; however, as the club gains more experience, it may take a position in the market.

Market Education Clubs: This type of club tends to be organized, like a formal class at a high school or college.

A set curriculum is followed and handout materials may be used for in-depth discussions with instructors and club members. In some cases, such clubs may be organized by technical colleges or by land grant colleges.

This approach was taken by Texas A & M's Cooperative Extension Service's Master Marketer Education System. However, the approach is more elaborate than most since it involves a collection of educational programs where agricultural producers, lenders and others involved in agriculture are trained in advanced risk management and marketing techniques.

The flagship program, Master Marketer, has already graduated more than 600 producers and agri-businessmen from 15 training sessions held across the state.

In a 2½-year post-graduation survey, graduates of the first seven training sessions indicated that, on average, they have increased their returns by $33,555 annually.

“There has to be something that holds the club together,” says Hurt. “Just talking about the markets may not be enough. As an educator, I believe some kind of an educational presentation or structured curriculum is necessary to help members continue to grow.”

Starting a marketing club doesn't have to be difficult or overly complicated. Clubs can be organized and run in a more casual setting, or they can evolve into a more formal operation. It's really up to the members, and the membership can be kept to a number that's manageable.

For example, the GRAINLAND Cooperative and Heartland Bank of El Paso, IL, decided to start its own marketing club based on producer interests about five years ago.

Known as the G & H Marketing Club, it has about 20 members and meets every other Thursday morning (except during planting season and harvest) from 6:30 to 8 a.m.

“Our basic focus is on grain marketing and on the fundamentals of what may have influenced the markets to go up or down,” says John Aeschliman, branch manager of GRAINLAND Cooperative in El Paso.

The club, however, allows for some flexibility since about one-fourth of its meetings are devoted to outside speakers who may discuss federal crop insurance programs or talk about working with commodity brokers, Aeschliman adds.

Although the club doesn't have a formal constitution or bylaws, it does have an advisory board that helps select pertinent topics and to keep it focused.

“We study the technical aspects of marketing, too,” says Aeschliman. “We study charts on beans and corn and we examine and discuss market statistics. We'll study the fundamentals, such as puts, calls, hedging and options, as well as look at the relative strength indexes.”

Club members also discuss 10-, 20- and 40-day moving averages in the market, including trend lines or retracement lines (i.e., 33%, 50% or 60%).

“I've been really impressed with how open producers are in these club meetings,” says Tom Hand, vice president and assistant trust officer of Heartland Bank, who helped organize the club. “It's gratifying to see producers share information and, in a sense, act as counselors in discussing and examining what worked or what didn't work in their marketing strategies.”

Larry Watson, a Purdue University extension educator from Terre Haute, IN, says, “There's no question that first understanding the basic terminology and fundamentals is important to the start up of a marketing club.” Watson helped start a local marketing club.

“Learning the mechanics of trading, as well as buying and selling options, has been important,” says Watson. “I've also stressed technical analysis of the markets, as well as practicing and understanding charting.”

Harley Drake, who raises corn and soybeans on 2,800 acres in Sullivan County, IN, has participated in the marketing club for a number of years.

“Belonging and participating in a marketing club offers a great opportunity to share your own ideas as well as draw from the marketing experiences of other producers from not just a local perspective but from a broader point of view,” says Drake. “The club has also offered the chance to discuss and learn about marketing strategies with local elevator managers.”

By belonging to the marketing club, Drake says he's become somewhat more aggressive and confident in his marketing tactics.

“We now do a lot more forward contracting, and we have a lot of our corn already sold in the $3.30 range for our new crop,” he says.

Hurt also advises producers who may participate in a marketing club to have some fun with it.

“Don't take the whole process too seriously so it becomes burdensome,” says Hurt. “If you enjoy interacting with your fellow producers, a club can be a rewarding experience.”

Training Better Marketers?

So can marketing clubs really make a difference? Gonzalee Martin, a Purdue University extension educator, based in Ft. Wayne, IN, thinks so.

About five years ago he helped organize a club in the Ft. Wayne area that now has about 20 regular producer members. They decided to set up a more formal club with a constitution as well as bylaws and officers. A secretary records minutes of each meeting.

A membership survey conducted last year clearly indicated that the marketing club was having a positive impact on the bottom line.

“We were pleased to find that most members reported a 2-5% increase in their bottom line due to participation in the club,” says Martin. “I think that's pretty good, and I would say the club has been successful from that standpoint.”

For those thinking of starting a formal marketing club, Martin offers these basic tips:

Start with the fundamentals: “At the start, it's important that everyone understand the marketing language or terms, such as futures contracts, hedging, puts, calls, strike prices and margin calls,” he says. Don't assume that everyone understands the language — get everyone on the same page.

Create a good constitution and bylaws: A constitution and bylaws keeps a group focused on its mission or purpose. They can also help resolve any issues, such as matters relating to how fees may be used in the trading club.

Take minutes of meetings: An accurate record of meetings can be a helpful tool in a formal marketing club. Again, if anyone has a question about matters within the club, minutes of meetings can save a lot of time in decision making.

Practice at paper trading: Trading on paper is obviously less risky and allows members to practice their marketing skills.

“Paper trading serves as an important exercise. It's also a good educational tool for discussing market trends,” says Martin. “When you lose money, members can get together and discuss what may have gone wrong and vice versa.”